Cancellation of Auto Insurance for Acquisition of New Policy

Cancellation of Auto Insurance for Acquisition of New Policy

Coverage under some types of insurance, such as life insurance, can be accumulated by an insured in what might be considered very large amounts without raising an insurer's concern about the size of the award to be made upon the occurrence of the event that triggers the insurer's payment obligation under the policy. A policy of motor vehicle insurance, in contrast to such types of personal insurance, is intended to reimburse an insured, or a third party protected against the occurrence of the kinds of events described in the policy, in an amount representing the value of a specific loss that has been suffered as the result of the ownership or operation of a car or truck. If an insured acquires a new policy covering an already insured vehicle, the original insurer will have an incentive to cancel its own policy to limit its exposure and avoid having to pay a “windfall” recovery in the event that an occurrence calling for payment under the policy should take place.

One complicating factor in the making of such business decisions is the mandatory nature of motor vehicle insurance coverage. Because the state has an interest in assuring that only properly insured cars and trucks operate on its roads and highways, state insurance laws will often contain provisions dealing with the circumstances under which an insurer may carry out the cancellation of an existing policy.

The business of insurance and the activities of insurance companies in the United States have traditionally been regulated by the laws of the individual states rather than by a single overarching federal law. Legal provisions covering the circumstances under which an insurer may cancel an auto insurance policy upon an insured's acquisition of a new policy, and describing the manner in which such cancellation may be effected, will thus vary from state to state.

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